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Oneok Buys Koch Natural Gas Liquids Biz for $1.3 Billion

Posted on: Tuesday, 5 July 2005, 21:00 CDT

Oneok Inc. purchased the natural gas liquids businesses owned by several Koch companies for about $1.3 billion.

The acquisition is consistent with our growth strategy and is a perfect fit with our existing businesses, said David Kyle, Oneok chairman, president and chief executive officer. It adds a new segment to our operations, giving us the ability to create additional value.

Of the 207 Koch company employees, 191 will join Oneok as part of the transaction. The majority of the employees will remain in field locations, with commercial and accounting activities transferred to Tulsa from Wichita.

The transaction is expected to generate approximately $135 million - $145 million of primarily fee-based earnings before interest, taxes, depreciation and amortization in 2006.

Initial financing of the transaction will be through a $1 billion bridge loan with the remainder financed under the company's commercial paper program or borrowings under its existing $1 billion, five-year credit agreement. Permanent financing of the acquisition is expected to come from a combination of available cash, issuance of long-term debt and proceeds from the settlement of the company's equity units. Oneok will form a new operating segment, called Natural Gas Liquids. It will consist of the company's existing NGL marketing business, currently part of the Gathering and Processing segment, and the businesses acquired from the Koch companies. It will not include assets regulated by the Federal Energy Regulatory Commission, which will be transferred to the company's Transportation and Storage segment. Vesco Holdings, also acquired as part of the Koch transaction, will be transferred to the Gathering and Processing segment. Natural Gas Liquids will be led by Senior Vice President Terry Spencer, who will report to John W. Gibson, president of Oneok Energy Cos.

The businesses acquired from the Koch companies give Oneok an NGL system that connects much of the NGL supply located in Oklahoma, the Texas Panhandle and Kansas with the two key market centers in Conway, Kan., and Mont Belvieu, Texas.

The purchase includes Koch Hydrocarbon LP's and Koch Underground Storage Co.'s entire mid-continent NGL business that provides NGL gathering, fractionation, storage and marketing services for processors and other parties in Oklahoma, Kansas and Texas. It includes 100 percent ownership in two fractionators in Medford, Okla., and Hutchinson, Kan., with a combined capacity of 240,000 barrels per day; a 10 percent interest in a 110,000-barrel-per-day fractionator in Conway; two underground NGL storage facilities; and a 9,000-barrel-per-day isomerization facility.

Also included in the transaction are KPL NGL Pipeline LP's NGL pipeline distribution systems - approximately 1,800 miles of interstate NGL distribution pipelines that connect the Conway and Mont Belvieu market centers; and approximately 2,600 miles of NGL gathering lines. Some of the gathering lines and the NGL distribution lines are regulated by the FERC and receive tariff payments for transporting raw NGLs and products. The business also receives income from its 50 percent interest in the 200-mile, FERC- regulated gathering pipeline owned by Chisholm Pipeline Co.

As part of the transaction, Oneok also acquired MBFF LP, which owns an 80 percent interest in the 160,000-barrel-per-day fractionator at Mont Belvieu, known as MB1. More than 90 percent of the EBITDA from that facility is generated by fee-based contracts. Oneok also acquired Koch Vesco Holdings LLC, an entity that owns a 10.2 percent interest in Venice Energy Services Company, and owns a gas-processing complex near Venice, La. The Vesco facility currently processes an average of 800 million cubic feet per day of natural gas and provides gas gathering, processing, fractionation, storage and distribution services to offshore Gulf of Mexico gas producers.

More than 90 percent of the mid-continent and Mont Belvieu businesses' EBITDA is generated by fee-based exchange contracts, tariffs and buy/sell transactions.

Source: Journal Record - Oklahoma City

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